April 12, 2011 

Employee Benefits Security Administration 

Office of Regulations and Interpretations 

Room N-5655 

U.S. Department of Labor 

200 Constitution Ave. NW 

Washington, DC 20210 

Attn: Public Hearing on Definition of Fiduciary 

Following two days of hearings on proposed regulations on the definition of “fiduciary,” the 

Department of Labor invited additional comments. The Pension Rights Center submits the 

following comments to supplement those filed on February 3, 2011, and our testimony 

presented on March 1, 2011. The Center is a nonprofit consumer organization that has been 

working since 1976 to protect and promote the retirement security of American workers and 

their families. We believe, that with one modification described in Section 4 below, the 

proposed regulations will add significantly to the retirement security of the millions of Americans 

who depend on employer-sponsored plans to prepare for financial security in retirement. 

1. Coordination with Other Regulatory Agencies. 

At the hearing some commentators suggested that the Department of Labor should work with 

other regulatory agencies toward the development of uniform standards of care for retail 

accounts, including a uniform definition of fiduciary that would cross statutory regimes. We 

believe that such an approach would be seriously misguided. Congress enacted ERISA in 

significant part to protect participants in employee benefit plans from conflicts of interest and 

other self-dealing. Although its protections have some overlap with statutory regimes designed 

to protect the integrity of the financial markets and consumers who participate in those markets, 

ERISA’s purposes, scope, and provisions are not identical to these other regimes. Perhaps 

most important, ERISA’s fiduciary provisions are based primarily on trust law principles and 

overriding fealty to the interests of participants. ERISA is designed not merely to disclose 

conflicts of interest, but to prevent them. 

While we believe it is appropriate for the Department of Labor to cooperate, consult, and 

coordinate with other agencies, we do not believe that the Department should subordinate its 

singular mission to protect participants in employee benefits plans to the different and at times 

more limited purposes of other statutory regimes. Moreover, as we noted in our original written 

comments, the Department’s proposed regulations are long overdue. They should not be put 

on hold until other agencies have fashioned final rules or completed studies under the statutes 

that they administer. 

2. Prohibited Transactions. 

Some commentators raised concerns that the regulations could turn non-objectionable and 

often benign business arrangements among affiliates of a fiduciary into prohibited transactions. 
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We believe that the answer to these concerns is the promulgation of appropriate class and 

individual prohibited transaction exemptions. 

3. Valuations of Plan Assets. 

Some commentators argued that the regulations should not characterize individuals who value 

non-publicly traded plan assets as fiduciaries. The thrust of these arguments seems to be twofold. First, they argue that valuation firms are subject to rigorous professional standards that 

can be enforced under state law. But the professional standards are not necessarily identical to 

standards under ERISA, and there is no basis under the statute to relax federal standards in 

favor of standards imposed on valuation firms by professional organizations or state or other 

local laws. Moreover, it is generally held that individual participants would not have standing to 

enforce such standards, which would mean that enforcement would almost certainly be left to 

the plan fiduciaries who engaged the valuation firm in the first instance. 

Second, opponents of the regulation’s approach contend that the plan fiduciary is the individual 

that is ultimately responsible for purchasing or selling plan assets and there is thus little reason 

to extend fiduciary status to a person who merely advises such fiduciary. They argue that 

participants can, in appropriate situations, bring a civil action against the responsible fiduciary. 

The problem with this argument is that the plan fiduciary responsible for purchasing or selling 

the non-publicly traded asset can defend its actions by claiming that it reasonably relied on the 

opinion of the expert. Thus, the reliance of the valuation expert dilutes the responsibility of the 

fiduciary who engaged the expert, who would be beyond ERISA’s reach. If the expert made 

errors that the fiduciary could not reasonably have identified, neither the existing fiduciary nor 

the valuation firm that committed the errors would be responsible under ERISA. 

4. The Sales Exception 

In its written comments and in its comments at the hearing on the regulations, the Center 

argued that the “sales” exemption under the proposed regulations was too broad and should not 

be applied to participants, who would not always be sufficiently sophisticated to evaluate even a 

disclosed conflict of interest. We also suggested that the sales exemption should not be 

applicable to “unsophisticated” fiduciaries. At the hearing, the panel asked what mechanisms 

might be available to identify “sophisticated” plan fiduciaries. We believe that the Department 

might provide that the sale exception is limited to fiduciaries with the background and expertise 

to evaluate an investment that is presented to it in a sales presentation. The regulations could 

create safe harbors to identify such fiduciaries. A safe harbor might, for example, be based on 

the total dollar value of plan assets for which the fiduciary has responsibility and years of 

experience at a particular asset level. 

Some commentators suggested that if the sales exception were narrowed, routine written 

advertisements or solicitations discussing a particular investment would be considered 

investment advice. We would support a clarification by the Department either in the preamble to 

final regulations or in the regulations themselves making plain that certain written 

advertisements or widely disseminated written solicitations are not investment advice. 

Some commentators also asked that the sales exception not require the “sales” person to 

disclose that its interests might be adverse to those of the plan participant, suggesting instead 

that the person only disclose that he or she has a financial interest in a sale. Although we do 

not think that the sales exception should apply to communications with participants, if it were to 

apply, we would be concerned that simply indicating that the sales person has a financial 
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interest in a transaction would not adequately convey the risk of conflict and, indeed, might 

clothe the sales person with an aura of excessive concern for the client’s welfare (“He even told 

me he had a financial interest, so he must be honest and concerned for my welfare.”) In our 

view, any disclosure should be clear that the sales person has an interest that might be adverse 

to the interests of the plan participant, and should indicate that federal law requires the 

disclosure. 

More generally, we note that commentators raised a range of concerns about how the 

regulations might be read in an overbroad manner to reach unintended results. Some of these 

objections were based on unreasonable and unrealistic interpretations of the regulations, but 

others may raise legitimate concerns. For example, a broker dealer who provides a fiduciary 

with the results of market research or “market color” should not be considered to be providing 

investment advice if the fiduciary has sufficient sophistication to understand the nature of the 

information being provided and will not consider it investment advice. In any event, we think 

that the Department can address virtually all of these concerns either in the preamble to final 

regulations or in the regulation itself by providing a list of specific activities that do not involve 

the furnishing of investment advice for a fee. We would be pleased to work with the Department 

in helping create such a list. 

Finally, we note that many of the objections to the proposed regulations seem to be based on 

the idea that fiduciary status will almost necessarily result in liability for honest advice rendered 

competently and in good faith and in the best interests of the participants. In our experience, 

courts do not find fiduciaries in breach except in those rare situations where a fiduciary has put 

his or her own interest ahead of the interests of the plan and its participants or has failed to 

meet the basic standards of prudence that ERISA prescribes. Literally hundreds of thousands 

of individuals and institutions have been willing to serve as plan fiduciaries and will continue to 

be willing to do so if the definition of fiduciary is expanded as proposed by the Department. In 

our view, individuals and institutions who are not willing to provide investment services to plans 

and their participants, unless they are shielded from liability for subordinating plan or participant 

interests to their own or for acting imprudently, have no business providing investment advice in 

the retirement plan market. 

Respectfully submitted, 

 

Norman P. Stein Rebecca Davis 

Senior Policy Advisor Legislative Counsel